Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[davidwjohnson]

alternate translation: nVidia is a very good competitor and has been able to meet/beat every critical performance milestone for the Dojo project so far (the net: They push each other to go even faster)

For those of you like me who are curious about DOJO, I asked Bing AI to explain.

In the context of Tesla, “Dojo” is the name of their project to build an in-house supercomputer.

The term “Dojo” is of Japanese origin and it’s not an acronym. It’s composed of two parts: “Do” means “a path, way or a road”, and “Jo” refers to “place”.

So, the translation of “Dojo” is "a place of the way". It traditionally refers to a hall or place for immersive learning, experiential learning, or meditation, often in the field of martial arts. However, it has been increasingly used in other fields, such as software development.

 

[The Accountant]

Question: (how) was it the entire amount?
2022's 10-K called out $7.35 Billion in differed tax assets and $18 Billion of federal loss carry forwards.

From the company's inception through 2019, Tesla had losses and should have been recording a tax benefit each year (sort of like tax income) because these losses would offset income in the future (as you can carry losses forward). But Tesla did not record this Tax Income as it was deemed *more likely than not* that Tesla would not generate enough profit in the future to absorb these losses. Once future profit is likely to absorb all these losses, you must take the benefit all at once (something that should have been done each from 2004-2019 but wasn't due to uncertainty with future profits). Why now in Q4, I am not sure. I hope this answers your question.

 

[thx1139]

The big wildcard in the shorter term is macros and interest rates.

Rates start easing, as expected this year? Margins start climbing.

Why? Does Tesla feel that with lower interest rates they can raise prices. So doesnt that imply the actual take home price for a car stays the same. So no real increase in demand?

 

[unk45]

This morning as I read the commentary after the results I notice several people discussing the Camacord Genuity evaluation as reported in press, but nothing about who they are, who their analyst is and why they are different. So, a little context:
First this interview from last year:

Second, who is the analyst?:

https://www.linkedin.com/in/george-gianarikas-66905476

Welcome George Gianarikas - Canaccord Genuity

George Gianarikas

www.canaccordgenuity.com

Third, what is Camacord Genuity?:

Investor Relations - Canaccord Genuity

www.canaccordgenuity.com

Mr. Gianarikas is a significant departures from the norm. From his beginnings with the ill-fated Bear, Stearns he has ‘marched to his own drummer’. The first clue is Boston Grammar, then Bear. Moving to CG is entirely in character.
Camacord Genuity is a uniquely Canadian departure from most established norms, including being based in Vancouver. Convenient to Chinese, isn’t it? They’ve had a colorful background, as a quick review shows as well as a challenging recent situation.
just to insert a CG Brazil connection, that also reminds of of Sigma Lithium, once in negotiations with Tesla, now in negotions with BYD, here is:

Notícias de Mineração Brasil - Canaccord Genuity

O NMB traz uma cobertura completa com as últimas notícias, tendências e análises do setor brasileiro de mineração

www.noticiasdemineracao.com

It’s not coincidence that CG Latin America is Based in Sāo Paulo.

While some of this may be excess information, it is relevant that Canadian history with Brazil, China, mining and renewables all are happening with remarkable coincidence; or perhaps it might even be planned?

 

[Todd Burch]

Why? Does Tesla feel that with lower interest rates they can raise prices. So doesnt that imply the actual take home price for a car stays the same. So no real increase in demand?

When rates went up they had to lower prices. When they go back down they should be able to increase prices.

That’s literally how the Fed uses interest rates to control the economy, and it has a bigger effect on large purchases (homes, vehicles) than smaller purchases since many people need to finance large purchases.

 

[unk45]

From the company's inception through 2019, Tesla had losses and should have been recording a tax benefit each year (sort of like tax income) because these losses would offset income in the future (as you can carry losses forward). But Tesla did not record this Tax Income as it was deemed *more likely than not* that Tesla would not generate enough profit in the future to absorb these losses. Once future profit is likely to absorb all these losses, you must take the benefit all at once (something that should have been done each from 2004-2019 but wasn't due to uncertainty with future profits). Why now in Q4, I am not sure. I hope this answers your question.

Given several other categories (e.g. warranty reserves) accounting conservatism resulted in over-reserving and questions about eventual profitability. I thought perhaps 2023 was the trigger because even the least optimistic view made both survival and profitability highly likely to the exact that they would have profits to shelter. After more than ten years those excessive warranty reserves began to seem absurd too. In a related manner they haven’t even had large losses on lease termination or used cars, much to the chagrin of pessimists.

We’re now at the point, perhaps, that all that can be quantified. Logical confirmation is in the very high Free Cash Flow, since these categories will have contributed to reducing ‘free’ and in part the ‘flow’.

I have not yet delved into the 10K. Most of this should be evident in the fine print notes, shouldn’t it?

 

[mongo]

From the company's inception through 2019, Tesla had losses and should have been recording a tax benefit each year (sort of like tax income) because these losses would offset income in the future (as you can carry losses forward). But Tesla did not record this Tax Income as it was deemed *more likely than not* that Tesla would not generate enough profit in the future to absorb these losses. Once future profit is likely to absorb all these losses, you must take the benefit all at once (something that should have been done each from 2004-2019 but wasn't due to uncertainty with future profits). Why now in Q4, I am not sure. I hope this answers your question.

I get the concept, but the number in the sharehold deck doesn't seem to match the 2022 10K. I'm sure the 2023 10K will explain it.
As to why in Q4, Tesla needs to square up taxes for the year based on yearly profit, so Q4 seems the correct time to make that determination and decision. Why 2023 vs a different year though? They called out stock based compensation tax deductions in 2022 (see below) and since they have cut those awards back (and the stock price drop means previously granted options have less value, boo!), it seems enabling. Plus, they may feel the worse of the economic downturn is behind us.
Happily, recognizing the assest is a positive sign regarding future profitability.

Previous wording seems to indicate partial release is possible, but again we can wait until the 10K to see what the numbers were.

2022 10K
"Given the improvement in our operating results and depending on the amount of stock-based compensation tax deductions available in the future, we may release the valuation allowance associated with the U.S. deferred tax assets in the next few years. Release of all, or a portion, of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period the release is recorded."

 

[Krugerrand]

Morning-after thoughts:

• They might not be keen, but they still are advertising. Elon has not declared the experiments a failure

I thought they provided real world numbers based on their targeted digital ads. Wasn’t it something like 10m views resulting in 500,000 additional inquiries about Tesla from non-Tesla owners. So new people to the brand. Didn’t they also say they would continue to do very specific targeting, collect the resulting data, etc., etc.,?

 

[The Accountant]

Enough cash to buy back some shares then?

Tesla spent $8.9B in CAPEX in 2023 (the highest ever) and still had $4.4B of cash left over.
I am Buyback agnostic; I can make a case for it and against it BUT I do believe that if Tesla generates around $2B in FCF by end of Q2, that would provide enough confidence to announce a buyback if share price is still low.
They will always have access to the capital markets . . .a strategy to buyback stock at $200 a share and later do an offering at $400 a share is not a bad thing.

 

[elasalle]

The lower the SP, the higher the chance and more effective the buyback is going to be maybe we can get Elon to 25%

 

[GhostSkater]

Probably we might understate the growth of utility-level and industrial storage.

While I totally agree, I don’t think it will come from 4680s, at least not anywhere close to current design in many aspects

You don’t need a thick walled cell for structural purposes, tabless electrode, high nickel content, etc

The one thing is has going for it is the DBE, which is a huge production energy and cost saving

We might see a 4680S for storage, thin cell wall, LFP or Sodium Ion.

While a bigger size is possible, which would be good for storage and LFP, winding it starts to become a challenge, Tesla already had problems winding 4680s at the start

Or maybe all 4680s will go towards vehicles, since structural packs are the way to go, and the energy density roadmap puts them way ahead of other high volume cylindrical cells, and the rest goes to energy storage

 

[Max Plaid]

Some charts showing that Tesla is still executing:
View attachment 1011894
View attachment 1011895View attachment 1011896View attachment 1011897


Bonus:
View attachment 1011898

So all that capacity added up is 2.3million...

Cost per vehicle is lower and auto margins are up. The next few years will be about accumulating shares for me so not to bothered if the stock is sideways for a bit before the new platform is ramped. Im pretty happy with the results as expected in between major ramps.

100% agree, I found yesterday's call very bullish for the medium term, and a bonus in the short term is that the markets will let us position for it

No it doesn't. It's a non-cash item.

That's some FCF they generated then!

Demand has reached its limit now as Tesla has the ability to increase production right now but hasn’t.

That's pure speculation, for all we know Tesla has been cranking out cars as fast as they can, inventory has decreased QoQ

We see a lot of EV FUD in the USA right now, but in Europe notes much. Here in Belgium, if you want a company car now, it has be to zero emissions or will be taxed to hell, as a result, cars on employees lists are all EV's, which do you think is the most available and folks are likely to pick?

 

[kabin]

No I think they will just get the entire package. Tesla's FSD computer and camera integration. This package with the software is not cheap and hard for legacy to find a way to pass it down to the customers when it potentially can cost 30% of the cost of the car. Then you add on the liabilities these legacy has to deal with as people do have high expectations if they drop 10k on an addon option, it's a hard sell until everyone is talking about how sleeping in their Teslas have changed their life.

I was thinking there would need to be a significant divergence given a legacy car platform's with different camera locations, drivetrains, braking, steering would require their own unique data and training.

 

[Singuy]

I was thinking there would need to be a significant divergence given a legacy car platform's with different camera locations, drivetrains, braking, steering would require their own unique data and training.

Perhaps one of the pain points in which Tesla requires some modifications. Elon thinks it's a no brainer while legacy is like...why are we spending money on something people are not asking for?

There's not enough compute for Tesla to start segregating and working on fsd from scratch for other car makers unless it's solved first for Tesla.

 

[ItsNotAboutTheMoney]

Why? Does Tesla feel that with lower interest rates they can raise prices. So doesnt that imply the actual take home price for a car stays the same. So no real increase in demand?

Margin. Should also help increase demand as the cost to the consumer decreases, plus as lower interest rates spread through the system it helps to lower cost of other debt to the consumer and to other businesses, which both increase consumer buying power.

 

[CitizenKane]

Dan IVes is not happy with the call.

https://twitter.com/x/status/1750492031795831245

 

[uscbucsfan]

I was thinking there would need to be a significant divergence given a legacy car platform's with different camera locations, drivetrains, braking, steering would require their own unique data and training.

Agreed. There's already a variance among Tesla cars and issues that need to be worked out. It's still a Beta, developing product. Adding in legacy cars at this point makes little sense for the legacy companies. It's not a fleshed out, reliable product on Teslas, where they control all aspects of regen/braking, cameras, etc.

When FSD is actually solved, it can be a different story, but that could be years.

 

[Hock1]

When rates went up they had to lower prices. When they go back down they should be able to increase prices.

That’s literally how the Fed uses interest rates to control the economy, and it has a bigger effect on large purchases (homes, vehicles) than smaller purchases since many people need to finance large purchases.

The rise of interest rates excluded a meaningful amount of potential Tesla buyers due to the fact that most car buyers, buy on time. As interest rates come down, incremental raises to the sales prices can be made, every dollar of which will go directly to the (pre-tax) bottom line.

Also, in the potential 2024 positive surprises category, I think it is possible that we will see sales of 4680, along with FSD licenses to OEMs.

 

[thx1139]

When rates went up they had to lower prices. When they go back down they should be able to increase prices.

That’s literally how the Fed uses interest rates to control the economy, and it has a bigger effect on large purchases (homes, vehicles) than smaller purchases since many people need to finance large purchases.

I understand that, but if the price ends up being the same why will it cause more people to buy.

Also I would like to know if say demand did increase what capabilities do the factories have to ramp further to meet demand? Can they? Can enough 2170 batteries be produced to make more Model 3s? Did anyone on the call ask what would it take for Tesla to make Model 3 eligible for the $7500 tax credit again. That sure seems like low hanging fruit.

 

[mongo]

Automotive sales gross margins up QoQ
Sales GM improved from 15.7% to 16.6%
With credits improved slightly from 18.2% to 18.4%
All in (lease and credits) up from 18.7% to 18.9%

Energy and service margins declined, but still positive.